Traditionally, the defense consists of three branches: the army, the air force and the navy. To these can now be added a fourth leg - cyber warfare. As computers increasingly come to control countries' infrastructure and where more and more socially critical functions are made more efficient through artificial intelligence, the vulnerability to cyber attacks also becomes more apparent.
The Swedish Armed Forces and societies, both in Sweden and abroad, are now adding more power and resources than ever to protecting themselves against cyber attacks. Regarding the defense, units are also created to be able to use cyber attacks in order to weaken the opponent.
According to estimates from Cybersecurity Ventures Costs related to cyber attacks will amount to $ 6 trillion annually in 2021, which is twice as much as they were estimated to sum up to 2015. At the same time, the attacks become more sophisticated and coordinated, which means that the forecast may even be at a lower level.
The development benefits the actors who provide system solutions and consulting services in cyber security. It concerns everything from niche cyber security companies that have this as their only business area, to large technology companies where cyber security is part of a larger product and service offering.
“We see a strong demand in cyber security at the same time it is a young industry, which means that you have to attack it with some caution. Many smaller cyber security companies are far from profitable. This means that the risks of investing in these are also high. At present, we choose to take a more cautious path and focus on the larger technology companies that benefit from the cyber security trend, ”explains Tor Sinclair who manages GDS Fund - a fund that focuses exclusively on the defense and security sector globally.
Tor mentions Microsoft as a global player offering cyber security within its cloud services.
"Microsoft's cloud service Azure includes a variety of cyber security solutions. At the same time, it is an extremely profitable company with world-leading products and that shares many of the character traits we are looking for in the major companies in the more traditional defense industry - stable dividend growth, strong and sustainable sales growth, good profit margins and a free cash flow at healthy levels ”.
Another more security-oriented technology company that Tor thinks of the cybersecurity trend is Symantec.
“Symantec is a company that has many of the major company qualities that we are looking for. The company has had some setbacks recently, which has led to a weak development in the share price. However, increased competition in the cybersecurity area will force them to review corporate governance, which we believe may release values in the company. ”
Among the more niche and significantly smaller cyber security actors the manager calls "next generation cyber companies", Fireeye and Carbon Black are mentioned.
”FireEye has been around for a long time and was already listed in 2013. The historical development of the share has been relatively weak, but we believe there is reason to believe that a turning point is in sight. The company is greatly favored by the dynamic environment that cyber security offers as it has a wide range of products. Sales growth is strong while the company is well capitalized, which creates scope for interesting acquisitions. ”
"Carbon Black is the smallest company among our cyber holdings with a market capitalization of about $ 1 billion. The company's focus on analysis of so-called 'big data' is a strength while having cutting-edge solutions for finding malicious software that can attack larger organizations. Nearly one-third of the Fortune100 companies are customers of the company. Given that they also have the US state as a customer, they should be favored when government agencies increase their investments in the area.
According to Tor, the smaller cyber companies have good opportunities for profitability improvements as the demand for cyber security solutions increases. They also have good prospects of being bought, which he believes offers another interesting opportunity for the fund's investors.
Picture of Markus Spiske via Unsplash
